Will financial business demeger bring a “Deja vu” moment for RIL shareholders?

economictimes.indiatimes.com:

Reliance Industries into Reliance Strategic Investments is unlikely to have a negative impact on the stock price of the conglomerate, and would rather be value accretive, according to Nuvama Institutional Equities.RIL announced the demerger of its financial services business into Reliance Strategic Investments, which will be renamed Jio Financial Services and listed on the stock exchanges. The brokerage values the demerged financial services business at Rs 1 lakh crore or Rs 168 a share, which is 5% of the some-of-the-parts valuation of RIL. Nuvama has valued treasury shares at Rs 168/share, which is 6% of the current market price of RIL, based on Friday’s closing price.

“We argue that RIL stock could be least impacted by this demerger and instead see an upside of 3-5%,” the brokerage said in its report. RIL has fixed July 20 as the record date to determine eligible shareholders for the allotment of shares of the demerged entity. Under the demerger, shareholders of RIL will get 1 share of Reliance Strategic Investments for every 1 share held in the conglomerate.2005 Demerger ExerciseIn June 2005, RIL board had approved a split of various businesses, following which three new subsidiaries – Reliance Natural Resources Ventures, Reliance Energy Ventures and Reliance Communications – were created.

Each of these subsidiaries issued its shares to shareholders of RIL in a ratio of 1:1. After the split, shareholders’ wealth appreciated by 38% as RIL shares did not fall post-split. Nuvama believes this time too, the demerger of the financial services business won’t have any major impact on the stock.